The 3rd Wave Of The Global Financial Crisis

The 3rd Wave Of The Global Financial Crisis

$GS, $DIA, $SPY, $QQQ, $VXX

Goldman Sacks (NYSE:GS): We are in a 3rd Wave of the global financial crisis.

“Increased uncertainty about the fallout from weaker emerging market economies, lower commodity prices and potentially higher US interest rates are raising fresh concerns about the sustainability of asset price rises, marking a new wave in the Global Financial Crisis,” Goldie said in a recent note.

The EM (emerging market) wave, coinciding with the collapse in commodity prices, follows the US stage, which marked the fallout from the housing crash, and the European stage, when the US crisis spread to the continent’s sovereign debt, the bank said.

Concerns that the US Fed would raise interest rates for the 1st time in nine years spurred a massive outflow of funds from the EMs, including Asia’s, recently. But the Fed meeting on 16-17 September surprised markets by leaving rates unchanged and many analysts moved their forecasts for the next hike back into Y 2016, if ever.

That’s helped to stabilize hard-hit markets and currencies, but some analysts expect that’s just a temporary reprieve.

A Key reasons Goldman is concerned about EM’s is that lower interest rates globally have fueled credit growth and a debt buildup, especially in China, and that is likely to impede future economic growth.

The firm noted that downgrades for EM economic and earnings outlooks have spurred fears of a “secular stagnation” of permanently low interest rates and fading equity returns. But it added that those fears are overdone.

“Much of the weakness in emerging markets and China is likely to reflect rebalancing of economic growth, rather than structural impairment,” it said. “While the adjustment is likely to take time (as it did in the U.S. and European Waves), it should lead to an unwinding of economic imbalances in time, providing the platform for ‘normalization’ in economic activity, profits and interest rates.”

But when it comes to equity returns, Goldman does not expect emerging markets will regain all their lost luster near term.

“The fundamental shift in relative performance away from emerging-market to developed-market equity markets, and from producers (and capex beneficiaries) to consumers is likely to continue,” it said.

Wednesday, the US major averages ended on its lows: DJIA -157.14 at 16924.75, NAS 100 -13.76 at 4782.85, S&P 500 -9.45 at 1994.24

Volume: Trade was higher then Tuesday with about 860-M/shares changing hands on the NYSE.

• NAS 100+1.0% YTD
• S&P 500 -3.1% YTD
• DJIA -5.0% YTD
• Russell 2000 -5.6% YTD

Stay tuned…

HeffX-LTN

Paul Ebeling

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